Saturday, November 24, 2007

American- Funds - Strategy- USA

“American funds are expensive to buy,” - 5.75 percent load on the A shares (breakpoints starting at $25,000 lower the load).

“But they're not expensive to own.”

Advisors also like the funds because there's little portfolio turnover (just 31 percent a year, vs. 117 percent for the industry) and little staff shuffling. Portfolio managers tend to stay decades as opposed to the 5.2 years of tenure that has become the mutual fund norm.

Funds are managed by a team, as opposed to relying on a single star portfolio manager.

Brokers also like American's dedication to them. Even when other companies started exploring different channels to sell their funds, courting the investing public directly with advertisements in the mainstream press and offering no-load shares, American continued to believe that advisors were critical to a retail investor's financial life.

Money that comes into American funds tends to stick around, mainly because of its hefty 5.75 percent front-end load. In comparison, billions that poured into the growth-oriented (no load?) Janus funds in the late 1990s, went out when the market turned.

“We think that people are best served when they get advice,” “When somebody buys the right fund for the right reason, they are much more likely to be a longer-term shareholder.”

For years, American maintained that clients were best served by front-loaded A shares because of their low expenses.

The firm introduced back-end load shares only in 2000. It was the first time the firm changed how funds were sold since its founding in 1931. It was the result of years of hand-wringing and analysis. The following year, the firm introduced level load, C-class shares, followed by a no-load version, the F shares, available through Schwab's One Source. The F shares can only be sold through an advisor, however.

“They recognized that the marketplace was shifting,” “And the shift was that brokerage firms were moving to a fee-for-service model, primarily because brokerages were riddled with investigations over commissions.”

Some advisors complain aboutrather stingy marketing strategy and the lack of face time with wholesalers, possibly because American's 100 sales reps are stretched thin.

“The job of the wholesaler is to help the broker build his business,” says one Atlanta-based broker who asked not to be named. “American Funds thinks the job of a wholesaler is to sell American Funds.”

The company's perceived ethical standards have so far served it well in light of the market-timing and late-trading scandals now roiling the fund world. So far, American has been unscathed. It has responded to the rash of investigations by New York Attorney General Eliot Spitzer in its customary fashion — by keeping quiet. The company refused to make anyone available, other than Freadhoff, the company spokesman.

Now that retail investors again seek professional financial guidance, American sits in the sweet spot with its loyal brokers

Top ten funds in year today inflows up to February 2004

American Funds
Vanguard Group
Fidelity Distributors
Dodge & Cox
T. Rowe Price Investment Services
Barclays Global Investor Funds
Franklin Distributors
Fidelity Advisors
Van Kampen Investments

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